Salad or doughnut? If that's the question for today's consumer, the answer appears to be yes and yes.
Three major food companies released strong earnings reports yesterday, as consumers not only snap up more healthful fare at fast-food chains, but also indulge in super-caloric sweets.
At McDonald's, profit was up 25 percent in the second quarter, driven in part by additions to its line of premium salads. At Wendy's International, net income was up 17 percent not only because sales of new salad items were robust, but also because the company's Tim Hortons doughnut chain in Canada and the United States had a stellar quarter.
Hershey Foods Corp., meanwhile, credited strong sales of its Swoops and S'mores chocolate candies for doubling its profit in the period.
A mixed message? Yes, but to veteran food watchers, that's no surprise.
"I've always said Americans are the only people I know who drive to the health club eating a doughnut," said Dennis Lombardi, executive vice president at Technomic Inc., a food industry consulting firm based in Chicago.
The growing interest of consumers in more nutritious fare has been developing in tandem with the growing popularity of exceptionally indulgent treats. Consider that even as the low-carb craze dominates the grocery business, super-premium ice cream chains such as Cold Stone Creamery and MaggieMoo's are opening new stores, and creating long sweet-tooth lines.
Some food companies have been actively marketing to this trend. At Subway, lower-fat subs have been promoted in part with an advertising campaign that seems to give customers permission to break the diet. "It's okay, I had Subway for lunch," ads say.
But if some people are eating both ways, the food industry has also discovered that while some customers want to eat light, others don't, so catering to both can increase sales. On a conference call yesterday, McDonald's Chief Financial Officer Matthew Paul stressed that strong sales of McDonald's new Fiesta salads haven't hurt the core menu. "We've sold a lot of them, but they have not at all detracted from the sale of Big Macs," he said.
That's because of customers like Tom Olender, who owns a court reporting company in the District. Asked if he ever ate at McDonald's two years ago, he gave a resounding "nooooooo." But about a year ago he became an occasional buyer of the chain's salads -- when he's out in his car at lunchtime.
"They're actually pretty good," he said.
It's not just diet trends that have helped these food giants ride very different waves to profitability. It's also the effective marketing of higher-margin products, and good execution.
A Hershey spokeswoman said Swoops and S'mores chocolates helped the bottom line in particular this quarter because they are especially profitable products with a premium price.
At McDonald's and Wendy's, sales have been helped by new menu items, better execution and more focus on transaction speed and the customer. These efforts have helped drive sales at a time when rising beef prices have eroded profits on hamburger items.
"They are just strong brands that got back on track with the consumer," said Lombardi of Technomic.